Analysis of time series for Malaysian currency exchange rate to the United States currency

Abstract

Currency exchange rate is one of the external factors that will affect the financial status of Malaysia. Therefore, forecasting the foreign currency exchange rate is important for the financial decision makers, bankers, academic researchers and business practitioners. Time series method is an important area of predicting future data based on the past data. In this study, Auto-Regressive Integrated Moving Average (ARIMA), Double Exponential Smoothing method and Holt-Winter additive method will be used to forecast the data of currency exchange rate of Malaysia Ringgit (RM) to United States of America Dollar (USD). The Mean Absolute Percentage Error (MAPE) for ARIMA, Double Exponential Smoothing method and Holt-Winter additive method are 0.9400, 0.9035 and 2.2686 respectively. In conclusion, the model generated by using Double exponential Smoothing method is the best model to forecast the currency data with the lowest value of MAPE, Mean Absolute Error (MAE) and Mean Square Error (MSE) compared to ARIMA method and Holt-Winter Additive method.